Rupee erases gains, retreats to 49.59 on dollar buying

New Delhi: India’s rupee erased the day’s gains on speculation some importers bought dollars to benefit from the local currency’s advance to a three-week high.

The rupee strengthened as much as 0.8% after the central bank on 2 December cut interest rates by 1 percentage point and the government unveiled a Rs200 billion ($4 billion) stimulus plan to bolster the economy. The rate cuts and the additional spending spurred optimism India may be able to shield itself from the global economic slump.

“There’s been some purchase of dollars by some oil company after the rally in the rupee following the weekend announcements,” said Paresh Nayar, chief of fixed-income and currency trading at Development Credit Bank Ltd in Mumbai. “They’ve booked some forward contracts too.”

The rupee climbed to 49.185 against the dollar, the highest intraday level since 17 November, before closing at 49.595 a dollar at 5pm in Mumbai, versus 49.60 on Sunday, according to data compiled by Bloomberg.

The local currency also pared gains, tracking moves in the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, which trimmed its advance to 2.2% after rising as much as 5.2%. The rupee has weakened 20.5% this year, making it the second worst performer among the ten most-active currencies in Asia outside Japan, after the global financial crisis prompted foreign funds to dump emerging-market assets.

Sales of Indian equities by overseas investors exceeded purchases this year by a record $13.6 billion as government data showed the economy expanded at the slowest pace in four years. Gross domestic product grew 7.6% in the third quarter from a year earlier, the least since December 2004.

The central bank cut its overnight lending rate, or repurchase rate, to 6.5% on 6 December. The Reserve Bank of India has reduced the rate three times in less than two months to help lower borrowing costs and boost domestic demand. The central bank cut the reverse-repurchase rate at which it drains surplus cash from the banking system to 5% to encourage lending.